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TMI Blog2024 (7) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... e which is set out primarily and essentially related to the operation or work of the firm (LLP partnership firm) constituted the profit earning apparatus of the assessee is in the nature of revenue expenditure. Thus, in the present case, the assessee paid the non-compete fees to Shri Paras C. Pandit and, therefore, it is in nature of revenue expenditure. Hence, the disallowance of non-compete fees expenditure by the AO and the CIT(A) is not justified. Thus, appeal of the assessee is allowed. - Ms. Suchitra Kamble, Judicial Member And Shri Makarand Vasant Mahadeokar, Accountant Member For the Assessee : Ms. Shrunjal Shah, AR For the Revenue : Shri N.J. Vyas, Sr. DR ORDER PER SUCHITRA KAMBLE: This appeal is filed by the assessee against ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. 3. The case was selected for complete scrutiny on the issue of income from Real Estate business and unsecured loans in assessee s case. Notices under Section 143(2) and 142(1) of the Income Tax Act, 1961 were issued from time to time asking the assessee to file the details. The assessee filed the reply dated 15.12.2020 giving the details of purchase of land, source of fund for investment in land, details of project, details of parties and construction material, details of opening, closing balance, details of squared up account and details of unsecured loan. The assessee subsequently furnished part details vide letter dated 23.01.2020. Show cause notice was issued on 23.02.2021. In response to the same, the assessee furnished confirmed c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of non-business expenditure relating to release of right under Section 37 of the Act amounting to Rs. 38,00,000/- to the income of the assessee. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that the assessee was incorporated on 11.11.2014 and had undertaken development of a real estate project by the name Samprati Residency in Naranpura, Ahmedabad. Shri Paras C. Pandit was a 20% partner in the said firm till 26.04.2016 after which due to some personal reasons he retired from the partnership. The Ld. AR submitted that the total saleable area of Samprati Residency was 1,12,080 sq. ft. and the year-wise area sold is tabulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shareholder SIPL 9.17 554 2014 (Initiation) 2018 (Completion) Total 45.03 2121 Units 5.2 The Ld. AR submitted that from these projects it is clear that the assessee was not merely stating out of proportion while describing about the experience, reputation and eminence of Shri Paras Pandit in real estate business in the reply filed before the Assessing Officer as well as CIT(A) and the same is based on the actual projects of the business. Profit element is involved in respect of future projects. Competitiveness of Shri Paras Pandit in sphere of real estate has categorically established the assessee that the payment given to him for avoiding any near future business competition from him cannot be claimed by the Revenue to be purely stage ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t non-compete fees gives enduring benefit to the assessee and thus capital in nature. The Ld. DR relied upon the decision of Hon ble Supreme Court in the case of Gillanders Case (1964) 53 ITR 283. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee being limited liability partnership firm entered into retiring partner Shri Paras C. Pandit and paid total of Rs. 70,00,000/- as non-compete charges for two years i.e. A.Y. 2017-18 2018- 19 equally Rs. 38,00,000/- approximately for each year. From the perusal of the Assessment Order the Assessing Officer has never disputed that Shri Paras C. Pandit ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Limited (supra) which is totally different set of facts. It is further observed that the Department not only received the tax in the very first year from the assessee but also got higher amount of tax from Shri Paras C. Pandit as surcharge payable was higher in individual compared to the firm and thus there was no revenue loss to the Department on account of this transaction. Non-complete consideration under Section 28(VA) of the Act is considered as income and, therefore, the assessee has rightly claimed the same as expenditure as the source of the profit or income of profit-making apparatus remains untouched and unaltered. The decision of Hon ble Gujarat High Court in the case of Smartchem Technologies Limited (supra) categorically me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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